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Chapter 2
Chapter 2
of the Economy
National Income Accounting
• The national income accounts is an
accounting framework used in measuring
current economic activity.
• The product approach measures the
amount of output produced, excluding
output used up in intermediate stages of
production.
National Income Accounting
(continued)
• The income approach measures the
incomes received by the producers of
output.
• The expenditure approach measures the
amount of spending by the ultimate
purchasers of output.
National Income Accounting
Numerical Example
AppleInc Transactions
Wages paid to AppleInc employees 15000
Taxes paid to government 5000
Revenues received from the sales 35000
Apples sold to public 10000
Apples sold to JuiceInc 25000
JuiceInc Transactions
Wages paid to JuiceInc employees 10000
Taxes paid to government 2000
Apples purchased from AppleInc 25000
Revenues received from the sales 40000
Why the Three Approaches Are
Equivalent
• The market value of a good (product)
and the spending on a good
(expenditure) are always the same.
• The seller’s receipts (expenditure) are
equal to the total income generated by
the economic activity (income).
Why the Three Approaches Are
Equivalent (continued)
• Fundamental identity of national income
accounting:
r i πe
πe = an expected inflation rate
End of Chapter